Budget Report

Updated on January 3, 2024
Article byDinanath Singh
Edited byAnkush Jain
Reviewed byDheeraj Vaidya, CFA, FRM

Budget Report Definition

Budget Report generally refers to the projected reports that show future planning of an organization about how to meet their expenses, how to achieve its income target to sustain in the market, how to invest in the market for their growth, and how to acquire assets.

Example of Budget Report

  • The budget report helps identify the estimation of future growth of sales, which is required to sustain the market. It also identified how the company would achieve the sales target by acquiring new customers, business units, and segments.
  • For example, suppose an organization makes a goal that $ 200000 sales will achieve in the upcoming month, which can be done by reducing their sale price per unit, acquiring new customers by giving them a discount.
  • This report is needed to estimate the upcoming expense and income. It generally covers the short-term period. It helps to identify how income is sufficient to meet the expenses. It also identifies the need for outside financing when it is required.
  • It provides information about how an organization will invest in new machinery, new products, and replace old machines and whether the same is fruitful for the organization.
  • All the expenses under the budget need approval, and nothing will carry forward from the previous year’s budget. It is very useful when there are limited resources available in the organization.
Budget-Report

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Source: Budget Report (wallstreetmojo.com)

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Advantages of the Budget Report

  • This report is important to safeguard the organization from future threats. Suppose the organization’s expenses will increase next year, and one will make sufficient provisions to safeguard them.
  • It is helpful to identify the growth of the organization.
  • It identifies the viability of a future project.
  • It helps to identify the weaknesses of a project.

For example, there is litigation going on, and if the organization loses the case, it requires a huge amount to pay; they might have to sell some assets to pay the same, which can question ongoing concern assumption.

  • It is important to identify an organization’s credibility to meet its dues.
  • It provides useful information for investment purposes.
  • Proper training and skill are required to prepare the budget report.

Disadvantages of the Budget Report

  • It is generally considered only a future expense, income, investment, or asset.
  • It doesn’t provide information relating to the current situation.
  • Preparation of a budget is time-consuming and requires an expert to prepare the same, which also involves cost.
  • Sometimes budget reports might manipulate or hide some information that can be useful for decision-making.
  • Anyone can blame others if the budgeted report is not achieved.
  • Sometimes it is misused by the department.

For example, suppose an organization fixed an expense budget for a particular department, say $ 10000. They will use all the unnecessary amounts knowing that a fund is available.

Limitations 

  • It is based on assumption and can not provide practical information.
  • The budget report prepared in the current year might change due to rapid changes in the market.
  • It sometimes involves manipulation to keep senior management happy.
  • It focuses only on financial matters of the future; it does not provide other information such as consumer behavior, market conditions, or product quality.
  • It does not provide any information about an existing situation.

Important Points 

The budget report is prepared based on assumptions, and there will be a high chance for variations in the report. Therefore, a report should be prepared based on a realistic approach to overcome this. Furthermore, in case of any changes in the report, management should be brought to notice.

Conclusion

This report is highly important for every organization to achieve its long-term goal. Proper training and skill must be given to employees for Budget report preparation. Most of the decisions of an organization are taken based on the Budgeted report.

This has been a guide to Budget Report. Here we discuss the types of the budget report along with an example, advantages, disadvantages, and limitations. You can learn more about it from the following articles –